Starting Small: How to Invest Even When Money Is Tight

Posted 10/16/2017

You may already be investing in your education, your career, and perhaps even in a home. So, how do you start putting away enough to meet your long-term plans? Fortunately, several options can help you start small— with minimal fees— even as you continue working toward your more immediate life goals.

Where to Begin

When it comes to saving, no amount is too small. Diverting just $20 from your food or transportation bill each week toward investing can help build a nest egg over the course of 20 years valued at nearly $30,000. As you start to benefit from your education and career investments, you may be able to contribute more to that weekly program, even as you start to participate in an employer-provided retirement plan.

While preparing for the future using traditional savings accounts helps, investing through stocks, bonds, mutual funds, or ETFs is regarded as a better alternative for money that you are saving for the distant future. The annual returns can be expected to be substantially higher and do a better job of keeping up with the rate of inflation.

Building a Portfolio

There is a misperception among new savers that to invest you should have large balances. Currently, several large, well-known financial firms have no-minimum, low-fee, online-only discount brokerage accounts. These include Ally Invest, TD Ameritrade, Charles Schwab, and MerrillEDGE. All currently have no minimum account opening requirements and charge between $4.95 and $6.95 for online trades. Also, many mutual fund companies will lower their account opening minimums if you agree to make deposits to the fund each month. However, other services may incur fees at many of these larger, more established companies.

Perhaps more accessible for beginners are app-based investment options like Acorns and Stash. Both mobile-friendly options allow you to nickel and dime your way to a well-diversified portfolio. Acorns works with your debit and credit cards to round up every purchase you make. The spare change is automatically diverted into a managed ETF portfolio.

Meanwhile, Stash provides entry to investing for as little as $5. Both firms are designed to help you learn how to invest and to get you started. They essentially create portfolios with training wheels. As with bicycle riding, you will probably want to graduate from being an investor-in-training at some point, and use a different program once you get the hang of it. Until then, they are both good starting points.

Other alternatives for investors include Robinhood, a new entry with no costs at all, and Motif. Motif allows its clients to create sophisticated, fully diversified, and customized portfolios—like a mutual fund—but with individual shares they select. It, too, is highly cost efficient.

Robo-advisors, such as Wealthfront and WiseBanyan, are app-based firms that do all the work for you, making your investment choices based on your circumstances and goals. While your balances are low, they assess no fees. Once you can afford to pay for advice and management, fees, which are still low by industry standards, are applied.

Given recent changes in the investment industry and the emergence of app-based alternatives, getting started as an investor is very much within the reach of most individuals. It just takes a willingness to consistently add what you can to your account and allow time for your portfolio to build momentum as its balance grows.

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